Income Tax Appellate Tribunal - Hyderabad
Secunderabad Club vs Assistant Commissioner Of Income-Tax on 5 March, 2002
Equivalent citations: [2002]83ITD199(HYD)
ORDER
M.V.R. Prasad, Accountant Member 1 to 11. [These paras are not reproduced here as they involve minor issues.]
12. The next common ground of the assessee is that the CIT(A) erred in upholding the action of the Assessing Officer in levying tax on the assessee at the maximum marginal rate under Section 167B of the Act on the ground that the shares of the assessee-club are not known and their shares are indeterminate.
13. It has been pleaded before me that provisions of Section 167B(1) are not applicable inasmuch as the shares of the members in the assessee-club are determinate. I find that the assessee-club has no share capital. I also find that the members of the club have share in the surplus on the winding up of the club. The relevant rule in the Rules-Book reads as under:-
(3) (a) If an Extraordinary General Meeting under the Rule decides to wind up the affairs of the club, it shall appoint a Liquidator of Liquidators and fix his or their remuneration. The liquidation shall be conducted, as nearly as practicable, in accordance with the Indian Companies Act and any surplus assets remaining after all the liabilities have been discharged shall be shared equally by the members of the Club.
The learned counsel for the assessee pleaded that the members have no share in the income of the assessee-club, and no dividend has been declared to members at any time in its history, even though the club has been in existence since 1878, for over a century. He also pleaded that Section 167B applies only to an association where the Members have a share in the income of the association. In a case where the members do not have any share at all in the income of the association, even though they have a share in the surplus in the event of winding up of the association, the provisions of Section 167B are not applicable. In other words, according to the learned counsel for the assessee, as the members have no share in the income of the assessee-club, even though the shares are determinate in the sense that the number of members at any point of time is ascertainable and the members' share in the surplus at the time of winding up is equal, the provisions of Section 167B are not applicable. In this context, he also relied upon my order dated 20-9-2001 for the assessment years 1989-90 and 1990-91 (ITA Nos. 457 & 514/H/96). It is pleaded that even though that order was passed in the context of the provisions of Section 143(1)(a), the reasoning given therein holds good even in the context of the present appeals.
14. The learned Departmental Representative, on the other hand, strongly supported the orders of the Revenue authorities on this issue.
15.1 am of the view that the assessee deserves to succeed. Rights of a member have two aspects-(1) Right to share in the income of the association; and (2) Right to share in the assets or surplus at the time of winding up. These two are separate right stand they cannot be identical. This is evident from the language of Section 21AA which refers to both these rights. The said provision reads as under-
21A A. (1) Where assets chargeable to tax under this Act are held by an association of persons, other than a company or co-operative society or society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India, and the individual shares of the members of the said Association in the income or assets or both of the said association on the date of its formation or at any time thereafter are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from such association in the like manner and to the same extent as it would be leviable upon and recoverable from an individual who is a citizen of India and resident in India for the purposed of this Act.
Corresponding provisions of Section 167B(1) of the Income-tax Act does not refer to share of the members in the assets of the association. It refers only to the share in the income. So, the difference in the language used in Section 21A A of the Wealth-tax Act and Section 167B(1) of the Income-tax Act cannot be brushed aside as of no consequence. Section 167B(2) also seems to refer only to an Association where the members have a share in its income as it uses the expression 'as aforesaid', referring to the association mentioned in Section 167B(1).
16. As the Wealth-tax Act levies tax on wealth, the share of Members in the assets of the Association is quite relevant for the purposes of Section 21A A of the Wealth-tax Act. Similarly, in the context of Income-tax Act, the share of the members in the income of the association for the purposes of Section 167B of the Income-tax Act, is relevant. So, it appears that the provisions of Section 167B(1) contemplate only an association where the members have a share in the income of the association though such shares are indeterminate. Section 167B(2) also appears to contemplate an association where the members have a share in the income of the association because, as already mentioned, it uses the word 'as aforesaid' in this way, which can only mean an association of the type referred to in Section 167B(1), that is, an association where the members have a share in the income of the association. The only difference is that Section 167B(2) covers those associations where the shares of the members are determinate in contrast to the provisions of Section 167B(1) which are restricted in application to the associations where the shares of the members are indeterminate. The common factor between Section 167B( 1) and Section 167B(2) seems to be that they relate to associations where the members have a share in the income and not simply right in the assets or in surplus on their winding up. So, it appears that the provisions of Section 167B are not applicable to the assessee-club as its members do not have share in its income, notwithstanding the fact that they share the surplus on its winding up. The further fact that there was no declaration of dividend for over a century of existence of the assessee-club cannot be ignored. This is supportive of the contention of the learned counsel for the assessee that the members do not have share in the income of the association.
17. Further, I find that the case of the assessee is supported by the Circular of the Board No. 320 dated 11-1-1982 (134 ITR 166-St), issued in terms of Section 167A of the Act, which was substituted by Section 167B(1) of the Income-tax Act. The said Circular reads as under-
A reference is invited to paragraphs 15.1 to 15.7 of the Explanatory Notes on the provisions relating to direct taxes in the Finance Act, 1981 (Circular No. 308 dated 29-6-1981) which explain the scope and ambit of Section 167A, as inserted by the Finance Act, 1981.
2. A question has been raised whether the provisions of Section 167A of the Income-tax Act which provides for charging of tax at maximum marginal rate on the total income of an association of persons where the individual shares of members in the income of such association are indeterminate or unknown would also apply to income receivable by trustees on behalf of provident funds, superannuation funds, gratuity funds, pension funds, etc. created bona fide by persons carrying on business or profession exclusively for the benefit of the persons employed in such business. The Board have been advised that cases where income received by the trustees on behalf of a recognised provident fund, approved superannuation fund and approved gratuity fund is governed by Section 10(25) of the Income-tax Act, the question of their being charged to tax does not arise. So far as cases where income is receivable by the trustees on behalf of an unrecognised provident fund or an unapproved superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession are concerned, they will continue to be charged to tax in the manner prescribed by Section 164(1)(iv) of the Income-tax Act, as hitherto. Similarly, in the cases of registered societies, trade and professional association, social and sports clubs, charitable or religious trusts, etc., where the members or trustees are not entitled to any share in the income of the association of persons, the provisions of new Section 167A will not be attracted and, accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an association of persons and not at the maximum marginal rate.
[Emphasis supplied] It may be observed that in terms of the above circular, incomes of the Sports Club, etc., where the members have no share in the income of the association of persons, tax shall be payable at the rates ordinarily applicable to the total income of an Association of Persons, and not at the maximum marginal rate.
18. It has been mentioned before me that the assessee-club has not been registered under any of the enactments like the Societies Registration Act or under Section 25 of the Companies Act. This does not seem to make any difference to the applicability of the above circular of the CBDT to the assessee-club.
19. For the foregoing reasons, I hold that the assessee-club has to be taxed at the ordinary rate applicable to the Association of Persons, and not at the maximum marginal rate in terms of Section 167B of the Act. Assessments may be modified accordingly.
20. Before parting, I may note that the learned counsel for the assessee has relied upon, and referred to at various stages of hearing, to the following decisions-
(a) Chelmsford Club v. CIT[2000] 243 ITR 89 (SC) (b} CIT v. Bankipur Club Ltd. [1997] 226 ITR 97 (SC)
(c) Rajpath Club v. CIT[1995] 211 ITR 379 (Guj.)
(d) CIT v. West Godavari, District Rice Millers Association [1984] 150 ITR 394 (AP)
(e) CIT v. Merchant Navy Club [1974] 96 ITR 261 (AP) I have already referred to the ratio of the decision at (d) above, which has followed the decision at (b) above. None of the other decisions is apposite to or at least decisive of the grounds raised in these appeals, and so, I do not find it necessary to discuss the same.
21. In the result, both the appeals of the assessee are allowed in part.